Unity Software (NYSE: U) had a great quarter.
You might fight me on this one given Unity’s disappointing guidance and net loss reported, but it’s a potentially brilliant long-term bet, albeit risky, that could be set for massive growth when President-elect Joe Biden takes office.
Let’s rip off the band-aid first and take a look at its earnings from last night:
- Loss per share: $0.97
- Revenue: $200.8 million
- Net loss: $144.7 million
- Q4 Guidance: 27%-29% year-on-year revenue growth.
Doesn’t look great, does it? Especially considering the lower-than-expected guidance on a company that is trading at x30 revenue. However, let me put this to you from another angle:
- Revenue: +53% year-over-year
- Dollar-based net expansion rate: 144% vs. 132% a year ago
- Adjusted diluted loss/share: -$0.09 vs. -$0.67 a year ago
- Customers worth annual recurring revenue >$100,000: 739 vs. 553 a year ago
- Free cash flow: $10.9m vs. $55.7 million a year ago
- Full year revenue guidance: +38.8% – 39.5% year-over-year
Now, that’s more like it!
What makes Unity stock so special?
Well, it looks like Unity and the videogame industry could be in for a big 2021 if President-elect Joe Biden initiates a 4 to 6-week lockdown as is being advised.
Already across Europe, and some U.S. states, lockdowns are coming back into effect as COVID cases surge. Given the timing around the holidays and the release of the fifth-generation of Xbox and PlayStation just his week, the gaming sector could be flooded with bored kids — and adults — needing a gaming fix.
Amid this pandemic, gaming is soaring, with the Esports & Digital Entmt ETF (NERD) up 57% year-to-date compared to the S&P 500’s 8.8% in the same period. Though only just recently IPO’d, Unity has a big part to play in this growth:
- Unity powers more than 50% of new mobile, PC, and console games.
- Unity powered apps have 5 billion downloads per month.
- It boasts 2.5 billion monthly active end-users.
- 94 of the top 100 game development companies are Unity customers.
- Away from gaming, the top 10 U.S. auto OEMs (producer of a vehicle’s components) are Unity customers.
Despite the risks of competition and the fact that it’s not yet profitable, Unity believes its addressable market is $29 billion across games and entertainment such as TV commercials or animated films, so there’s still plenty of room for growth.
Read our Unity Software breakdown for a more in-depth analysis.
A MyWallSt subscription gives you access to over 100 market-beating stock picks and the research to back them up. Our analyst team post daily insights, subscriber-only podcasts and the headlines that move the market. Get your free access now!
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in Netflix. Read our full disclosure policy here.
Content Manager at MyWallSt
Jamie is the Content Editor here at MyWallSt. His favorite stock is Apple, which is also the first stock he ever bought. Jamie is not only a big fan of its products, but he believes that the tech giant has a whole lot more to give the world, and hasn't even scraped the surface of its potential.